Speculation not cause of cedi depreciation – Bright Simons

Bright Simons noted that the country’s current inflation rate is evidently a reason for the cedi’s depreciation as people seek to find ways to preserve the value of their assets.

He said: “there are multiple factors involved with complex interrelationships… the linkage becomes stronger when the effects are so pronounced.”

The Ghana cedi has depreciation by over 50% in the past 8 months of 2022.

While many have attributed the rise to factors such as speculation and the activities of black-market operators, Bright Simons in the article said, “The government’s focus on speculators is wrongheaded because the conditions exist for the vast majority of rational economic actors to want to hedge against the currency. To focus one’s energies in such circumstances on the smaller number of actors with the financial heft, risk appetite and risk capital to profit from the situation is distracting.”

He further said: “Speculation primarily involves the use of risk capital to make gains from future shifts in the exchange rate, known in the jargon as “Inter-temporal carry-overs”.

“Sometimes those speculating are following the herd or trying to find the right bandwagon. But profit is a major intention. In that sense, speculators can actually be stabilizing if they sense that the local currency will rise in the future and start to dump their inventories of foreign currencies forcing the rate to align with the long-run equilibrium rate. Many theorists even go as far as argue that speculation at variance with fundamentals is always loss-making and thus unsustainable,” he said.

He however calls on the government to cut wasteful expenditure and “lay a good ground for securing an IMF deal.”